The focus of the digital RMB is to serve the domestic market, and it still needs to improve its own functions to participate in international currency competition

Zhou Xiaochuan, Vice Chairman of the Boao Forum for Asia, Vice Chairman of the 12th National Committee of the Chinese People's Political Consultative Conference, and former Governor of the People's Bank of China, said that China's digital RMB is not for cross-border use, but to take advantage of technological development, especially the popularization of mobile Internet, to provide payment for the public more conveniently. Li Bo, Deputy Governor of the People's Bank of China, also said that the current development focus of the digital RMB is to promote its use in China.

The focus of digital RMB is to serve the domestic market

"China has a very large retail market of 1.4 billion people, and everyone hopes for a more convenient, efficient and low-cost payment system. At the beginning, the central bank did not think about whether it needed to build a wholesale system or internationalize the RMB, but started with the retail system," Zhou Xiaochuan said.

The digital currency developed by the People's Bank of China was originally called digital currency/electronic payment (DCEP), and is now renamed digital renminbi (e-CNY). Its main function is to replace M0, that is, cash in circulation, rather than bank deposits (narrow money M1 and broad money M2).

"The digital RMB is currently defined as an M0 currency, so it can mainly affect the monetary transmission policy of the People's Bank of China. In China's past management of M0 currency, large cash transactions may involve gray areas, and the use of digital RMB has greatly enhanced China's management capabilities for M0 currency." Deng Ke, CEO of financial technology company Primestar, told Chain News.

Deng Ke believes that the use of digital RMB will first further reduce the cost of using digital means for online payment and settlement, reduce the burden on merchants, especially small and micro merchants, and is an important part of China's promotion of inclusive finance. Secondly, the use of digital RMB has brought new challenges and opportunities to the payment and settlement market, which is already in a semi-monopolistic state. "Other impacts on the financial market remain to be seen, but if the digital RMB breaks through the restrictions of M0 and enters the field of M1 or M2, it will have a more far-reaching impact and change on the financial market."

"The digital RMB will directly impact payments, especially mobile payments." Huang Yiping, deputy dean of the National School of Development at Peking University and director of the Digital Finance Research Center at Peking University, believes that the digital RMB does have some unique advantages in its payment function: first, the digital RMB is issued by the central bank, so it is legal tender, and there is basically no possibility of default; second, the cost of digital RMB payment may be lower than mobile payment, and ordinary people should not need to pay when using sovereign currency for payment; third, the digital RMB is likely to have some more inclusive features.

Huang Yiping believes that although the digital RMB will definitely have an impact on mobile payments, it is not clear how big the impact will be. On the one hand, today users use mobile payments not only because of their payment functions, but more importantly, a whole ecosystem around payment tools. On the other hand, even if the digital RMB can sweep the payment market, it does not mean that Alipay or WeChat Pay will withdraw from this market. On the contrary, it is more likely that future payment wallets will not only store traditional RMB deposits connected to bank accounts, but also digital RMB.

Huang Yiping believes that the most fundamental change that the digital RMB may bring is the data collection and analysis mode in the payment system. At present, the basic mode of mobile payment is that Alipay and WeChat Pay each establish a payment system, and other institutions join different camps, and finally form the "Ali system" and "Tencent system" in the mobile payment market. They are independent of each other. "This pattern is not the most ideal state, but the advantage is that mobile payment institutions can fully track the entire process of capital flow. But the situation may be different after the digital RMB is implemented. In the future, there will be a state of one digital currency and nine wallets. The advantage is that they can trade with each other, but from then on each institution will only have part of the data of the entire transaction. In the future, only the People's Bank of China may have complete big data."

If the complete data is in the hands of the central bank, on the one hand, it can avoid the "disorderly expansion of capital"; on the other hand, what needs to be considered is whether big data can still be effectively mined and utilized, and whether the trajectory of digital financial development will be completely rewritten.

"Our goal now is to establish a solid domestic digital currency, the RMB, and build a healthy ecosystem. At the same time, we will work with international partners to establish cross-border payment solutions," said Li Bo.

It is expected to enable the internationalization of RMB in the future

Since October last year, the digital RMB has completed pilots in Shenzhen, Suzhou, Beijing, Chengdu and other places, leading the central banks of various countries. At the same time, the role of the digital RMB in cross-border payments and promoting the internationalization of the RMB has also been mentioned more and more.

Li Bo said at the forum that the current development focus of the digital RMB is to promote its use in China. "The internationalization of the RMB is a natural process. Our goal is not to replace the US dollar or other currencies, but to let the market make choices to further facilitate international trade and investment."

Huang Yiping believes that the digital RMB may not yet be regarded as a CBDC in the full sense. Its main function is still small payments in the retail sector, and it does not have wholesale functions. Moreover, since the RMB has not yet achieved free convertibility and is not an international currency, the digital RMB cannot truly participate in the competition for CBDC.

Previously, the Bank for International Settlements jointly established a CBDC working group with seven central banks, but did not invite the People's Bank of China, which has developed relatively rapidly in this area, to participate. This also triggered speculation as to whether central banks of various countries are excluding China from participating in rule-making.

"But in any case, if China does not want to miss the new international currency competition and the formation of international monetary system rules, it should accelerate the implementation of the digital RMB, capital account convertibility, and the coordinated promotion of the RMB internationalization restart policy," said Huang Yiping.

In fact, since each country has its own macroeconomic regulation and monetary sovereignty, there are large differences in the systems of various countries, and the central bank digital currencies of various countries are based on their own currencies, and there will be different rules in the process of use. In the long run, currencies will develop in an integrated or simpler direction, but for now, the interoperability between central bank digital currencies is still a very complex issue.

"We will not rush to find a solution. Now is the time to choose different options to experiment with different technologies," said Li Bo.

Recently, the Digital Currency Research Institute of the People's Bank of China has jointly launched the Multilateral Central Bank Digital Currency Bridge Research Project (m-CBDC Bridge) with the Hong Kong Monetary Authority, the Bank of Thailand, and the Central Bank of the United Arab Emirates. It is reported that this move aims to explore the application of central bank digital currency in cross-border payments, and the project is supported by the Hong Kong Innovation Center of the Bank for International Settlements.

In fact, realizing the internationalization of the RMB and participating in the CBDC competition is not only to play a greater role in the international monetary system, but also an important means to ensure national financial security.

"China is gradually increasing its participation in international economic activities, deepening cooperation and exchanges with other economies, and enhancing China's voice in specific industries and fields. This has also made our country's demand for promoting the internationalization of the RMB increasingly strong." Chen Xiaohua, director of the Blockchain Professional Committee of the China Mobile Communications Association and digital economist, told "Chain News".

Chen Xiaohua believes that currency internationalization is the product of a country's comprehensive strength developing to a certain stage, and is also an important part of my country's monetary and financial strategy. In the current context of actively promoting internationalization, digital RMB can help RMB internationalization.

Cao Yin, managing director of the Digital Renaissance Foundation, told ChainNews that the globalization of any regional currency faces the problem of geopolitical games. If the digital RMB wants to go far, it needs to cooperate with major trading countries in the world. "China has had local currency swap agreements with Japan and South Korea before. Although these agreements are intermittent and not particularly large in scale, they are an important policy basis for cooperation with major global trading partners. If the balance of local currency swaps or the amount of the next local currency swap can be replaced by digital RMB, this will be a good development opportunity for the digital RMB."

Huang Yiping believes that the future international currency may be the US dollar digital currency, the RMB digital currency or the digital currency of other countries, or even a supranational digital currency. "In the future, the international currency competition should eventually focus on one or a very small number of CBDCs. A basic prerequisite for the digital RMB to participate in this competition is to improve its own functions.